<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission file number 0-18169
IEA INCOME FUND IX, L.P.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3069954
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 MARKET STREET, 15TH FLOOR, SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
<PAGE> 2
IEA INCOME FUND IX, L.P.
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996 4
Statements of Operations for the three months ended March 31, 1997 and 1996 (unaudited) 5
Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of March 31,
1997 and December 31, 1996, statements of operations for the three
months ended March 31, 1997 and 1996, and statements of cash flows for
the three months ended March 31, 1997 and 1996.
3
<PAGE> 4
IEA INCOME FUND IX, L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, includes $878,664 at March 31, 1997
and $935,733 at December 31, 1996 in interest-bearing accounts $ 896,964 $ 936,081
Net lease receivables due from Leasing Company
(notes 1 and 2) 527,711 543,250
------------ ------------
Total current assets 1,424,675 1,479,331
------------ ------------
Container rental equipment, at cost 16,481,361 16,577,611
Less accumulated depreciation 7,066,754 6,867,857
------------ ------------
Net container rental equipment 9,414,607 9,709,754
------------ ------------
$ 10,839,282 $ 11,189,085
============ ============
Partners' Capital
-----------------
Partners' capital (deficit):
General partner $ (13,434) $ (4,963)
Limited partners 10,852,716 11,194,048
------------ ------------
Total partners' capital 10,839,282 11,189,085
------------ ------------
$ 10,839,282 $ 11,189,085
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IEA INCOME FUND IX, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Net lease revenue (notes 1 and 3) $ 452,207 $ 567,613
Other operating expenses:
Depreciation 241,055 248,751
Other general and administrative expenses 9,674 8,634
--------- ---------
250,729 257,385
--------- ---------
Earnings from operations 201,478 310,228
Other income:
Interest income 11,018 14,105
Net gain (loss) on disposal of equipment (5,023) 16,234
--------- ---------
5,995 30,339
--------- ---------
Net earnings $ 207,473 $ 340,567
========= =========
Allocation of net earnings:
General partner $ 17,676 $ 33,827
Limited partners 189,797 306,740
--------- ---------
$ 207,473 $ 340,567
========= =========
Limited partners' per unit share of net earnings $ 5.58 $ 9.02
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
IEA INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 470,282 $ 561,630
Cash flows provided by investing activities:
Proceeds from sale of container rental equipment 47,876 37,887
Cash flows used in financing activities:
Distribution to partners (557,275) (703,089)
----------- -----------
Net decrease in cash and cash equivalents (39,117) (103,572)
Cash and cash equivalents at January 1 936,081 1,109,677
----------- -----------
Cash and cash equivalents at March 31 $ 896,964 $ 1,006,105
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
IEA INCOME FUND IX, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund IX, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of California on June 8, 1988 for
the purpose of owning and leasing marine cargo containers. Cronos
Capital Corp. ("CCC") is the general partner and, with its affiliate
Cronos Containers Limited (the "Leasing Company"), manages the business
of the Partnership. The Partnership shall continue until December 31,
2009, unless sooner terminated upon the occurrence of certain events.
The Partnership commenced operations on December 5, 1988, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 40,000 units of limited partnership interest at
$500 per unit, or $20,000,000. The offering terminated on September 11,
1989, at which time 33,992 limited partnership units had been
purchased.
As of March 31, 1997, the Partnership operated 2,166 twenty-foot, 742
forty-foot and 1,500 forty-foot high-cube marine dry cargo containers.
(b) Leasing Company and Leasing Agent Agreement
Pursuant to the Limited Partnership Agreement of the Partnership, all
authority to administer the business of the Partnership is vested in
CCC. CCC has entered into a Leasing Agent Agreement whereby the Leasing
Company has the responsibility to manage the leasing operations of all
equipment owned by the Partnership. Pursuant to the Agreement, the
Leasing Company is responsible for leasing, managing and re-leasing the
Partnership's containers to ocean carriers and has full discretion over
which ocean carriers and suppliers of goods and services it may deal
with. The Leasing Agent Agreement permits the Leasing Company to use
the containers owned by the Partnership, together with other containers
owned or managed by the Leasing Company and its affiliates, as part of
a single fleet operated without regard to ownership. Since the Leasing
Agent Agreement meets the definition of an operating lease in Statement
of Financial Accounting Standards (SFAS) No. 13, it is accounted for as
a lease under which the Partnership is lessor and the Leasing Company
is lessee.
The Leasing Agent Agreement generally provides that the Leasing Company
will make payments to the Partnership based upon rentals collected from
ocean carriers after deducting direct operating expenses and management
fees to CCC. The Leasing Company leases containers to ocean carriers,
generally under operating leases which are either master leases or term
leases (mostly two to five years). Master leases do not specify the
exact number of containers to be leased or the term that each container
will remain on hire but allow the ocean carrier to pick up and drop off
containers at various locations; rentals are based upon the number of
containers used and the applicable per-diem rate. Accordingly, rentals
under master leases are all variable and contingent upon the number of
containers used. Most containers are leased to ocean carriers under
master leases; leasing agreements with fixed payment terms are not
material to the financial statements. Since there are no material
minimum lease rentals, no disclosure of minimum lease rentals is
provided in these financial statements.
(Continued)
7
<PAGE> 8
IEA INCOME FUND IX, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net lease
revenue is recorded by the Partnership in each period based upon its
leasing agent agreement with the Leasing Company. Net lease revenue is
generally dependent upon operating lease rentals from operating lease
agreements between the Leasing Company and its various lessees, less
direct operating expenses and management fees due in respect of the
containers specified in each operating lease agreement.
(d) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Partnership to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to a fair statement of the financial condition
and results of operations for the interim periods presented.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base
management fees payable, and reimbursed administrative expenses payable
to CCC and its affiliates from the rental billings payable by the
Leasing Company to the Partnership under operating leases to ocean
carriers for the containers owned by the Partnership. Net lease
receivables at March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $124,386 at March 31, 1997 and $124,324
at December 31, 1996 $779,412 $767,166
Less:
Direct operating payables and accrued expenses 108,990 79,541
Damage protection reserve 72,410 73,502
Base management fees 57,928 57,795
Reimbursed administrative expenses 12,373 13,078
-------- --------
$527,711 $543,250
======== ========
</TABLE>
(Continued)
8
<PAGE> 9
IEA INCOME FUND IX, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management fees and reimbursed administrative expenses to CCC from
the rental revenue billed by the Leasing Company under operating leases
to ocean carriers for the containers owned by the Partnership. Net
lease revenue for the three-month periods ended March 31, 1997 and
1996, was as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Rental revenue $678,072 $842,047
Less:
Rental equipment operating expenses 144,799 173,962
Base management fees 46,954 56,660
Reimbursed administrative expenses 34,112 43,812
-------- --------
$452,207 $567,613
======== ========
</TABLE>
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between March 31, 1997 and
December 31, 1996.
During the first quarter of 1997, the Registrant disposed of 23
containers as part of its ongoing container operations. At March 31,
1997, 92% of the original equipment remained in the Registrant's fleet,
as compared to 93% at December 31, 1996, and was comprised of the
following:
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------ ---------
<S> <C> <C> <C>
Containers on lease:
Term leases 158 60 167
Master lease 1,423 493 1,108
----- --- -----
Subtotal 1,581 553 1,275
Containers off lease 585 189 225
----- --- -----
Total container fleet 2,166 742 1,500
===== === =====
</TABLE>
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------------ ----------- ------------
Units % Units % Units %
----- --- --- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Total purchases 2,327 100% 799 100% 1,653 100%
Less disposals 161 7% 57 7% 153 9%
----- --- --- --- ----- ---
Remaining fleet at March 31, 1997 2,166 93% 742 93% 1,500 91%
===== === === === ===== ===
</TABLE>
Net lease receivables at March 31, 1997 declined 3% when compared to
December 31, 1996. Contributing to this change was an increase in
direct operating payables and accrued expenses, a component of net
lease revenue. Direct operating payables and accrued expenses increased
37% from December 31, 1996 due to the increase in costs associated with
lower utilization levels, including handling, storage and
repositioning.
During the first quarter of 1997, distributions from operations and
sales proceeds amounted to $557,275, reflecting distributions to the
general and limited partners for the fourth quarter of 1996. This
represents a decline from the $675,303 distributed during the fourth
quarter of 1996, reflecting distributions for the third quarter of
1996.
During 1996, ocean carriers and other transport companies moved away
from leasing containers outright, as declining container prices,
favorable interest rates and the abundance of available capital
resulted in ocean carriers and transport companies purchasing a larger
share of equipment for their own account, reducing the demand for
leased containers. Once the demand for leased containers began to fall,
per-diem rental rates were also adversely affected. These conditions
continued to exist throughout the first quarter of 1997. However, the
Registrant's average utilization rate at March 31, 1997 was 79%,
unchanged from December 31, 1996. The Leasing Company continues to
implement various marketing strategies, including but not limited to,
offering incentives to shipping companies, repositioning containers to
high demand locations and focusing towards term leases and other
leasing opportunities including the leasing of containers for local
storage, in order to counter current leasing market conditions. These
conditions are expected to continue throughout 1997, impacting the
Registrant's liquidity and capital resources.
10
<PAGE> 11
2) Material changes in the results of operations between the three-month
period ended March 31, 1997 and the three- month period ended
March 31, 1996.
Net lease revenue for the first quarter of 1997 was $452,207, a decline
of approximately 20% from the first quarter of 1996. Gross rental
revenue (a component of net lease revenue) for the quarter was
$678,072, a decline of 20% from the same period last year. During 1997,
gross rental revenue was primarily impacted by the sluggish container
leasing market conditions that existed during 1996 and throughout the
first quarter of 1997. These conditions contributed to lower average
per-diem rental rates, which declined 9% when compared to the same
period in the prior year. The Registrant's average fleet size and
utilization rates for the three-month periods ended March 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 6,658 6,900
Average Utilization 79% 83%
</TABLE>
The Registrant's declining fleet size contributed to a 3% decline in
depreciation expense when compared to the same period in the prior
year. Rental equipment operating expenses were 21% of the Registrant's
gross lease revenue during the three-month period ended March 31, 1997,
consistent with the same period in the prior year. Increases in costs
associated with lower utilization levels, including handling, storage
and repositioning, were offset by declines in repair and maintenance
expenses and the provision for doubtful accounts. The Registrant's
fleet size and related operating results contributed to a decline in
base management fees and reimbursed administrative expenses.
As reported in the Registrant's Current Report on Form 8-K and
Amendment No. 1 to Current Report on Form 8-K, filed with the
Commission on February 7, 1997 and February 26, 1997, respectively,
Arthur Andersen, London, England, resigned as auditors of The Cronos
Group, a Luxembourg Corporation headquartered in Orchard Lea, England
(the "Parent Company"), on February 3, 1997.
The Parent Company is the indirect corporate parent of Cronos Capital
Corp., the General Partner of the Registrant. In its letter of
resignation to the Parent Company, Arthur Andersen states that it
resigned as auditors of the Parent Company and all other entities
affiliated with the Parent Company. While its letter of resignation was
not addressed to the General Partner or the Registrant, Arthur Andersen
confirmed to the General Partner that its resignation as auditors of
the entities referred to in its letter of resignation included its
resignation as auditors of Cronos Capital Corp. and the Registrant.
The Registrant does not, at this time, have sufficient information to
determine the impact, if any, that the concerns expressed by Arthur
Andersen in its letter of resignation may have on the future operating
results and financial condition of the Registrant or the Leasing
Company's ability to manage the Registrant's fleet in subsequent
periods. However, the General Partner of the Registrant does not
believe, based upon the information currently available to it, that
Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.
Arthur Andersen's report on the financial statements of Cronos Capital
Corp. and the Registrant, for either of the past two years, has not
contained an adverse opinion or a disclaimer of opinion, nor was any
such report qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been
no disagreements between Cronos Capital Corp. or the Registrant and
Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
11
<PAGE> 12
Due to the nature and timing of Arthur Andersen's resignation, the
Parent Company and General Partner were unable to name a successor
auditor on behalf of the Registrant until it retained Moore Stephens,
P.C. ("Moore Stephens") on April 10, 1997, as reported in the
Registrant's Current Report on Form 8-K, filed April 14, 1997.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to
future results of the Registrant, including certain projections and
business trends, that are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projected as a result of certain risks
and uncertainties, including but not limited to changes in: economic
conditions; trade policies; demand for and market acceptance of leased
marine cargo containers; competitive utilization and per-diem rental
rate pressures; as well as other risks and uncertainties, including but
not limited to those described in the above discussion of the marine
container leasing business under Item 2., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those
detailed from time to time in the filings of Registrant with the
Securities and Exchange Commission.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of September 12, 1988
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K, dated February 7, 1997 and
Amendment No. 1 to Report on Form 8-K dated February 26, 1997,
reporting the resignation of the Registrant's certifying accountant.
The Registrant filed a Report on Form 8-K, April 14, 1997, reporting
the appointment of the Registrant's successor certifying accountant.
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant
dated September 12, 1988, included as part of Registration Statement on
Form S-1 (No. 33-23321)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 33-23321)
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA INCOME FUND IX, L.P.
By Cronos Capital Corp.
The General Partner
By /s/ JOHN KALLAS
--------------------------------------
John Kallas
Vice President, Treasurer
Principal Finance & Accounting Officer
Date: June 16, 1997
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of September 12, 1988
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
</TABLE>
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant
dated September 12, 1988, included as part of Registration Statement on
Form S-1 (No. 33-23321)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 33-23321)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD MARCH 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 896,964
<SECURITIES> 0
<RECEIVABLES> 527,711
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,424,675
<PP&E> 16,481,361
<DEPRECIATION> 7,066,754
<TOTAL-ASSETS> 10,839,282
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,839,282
<TOTAL-LIABILITY-AND-EQUITY> 10,839,282
<SALES> 0
<TOTAL-REVENUES> 452,207
<CGS> 0
<TOTAL-COSTS> 250,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 207,473
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207,473
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
